ETF markets hit record highs: report

Canadian ETFs had a record 2017, with total assets under management (AUM) reaching C$145 billion and inflows of C$26 billion—an increase of 56% from 2016, finds a BMO Global Asset Management report.

Further, the global ETF market also hit a record high of US$4.6 trillion in AUM, which includes more than US$649 billion in new assets.

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Here are some additional findings.

• The U.S. ETF market ended the year with US$3.4 trillion in AUM and had US$465 billion in new assets.
• The European ETF market had a strong year, with US$762 billion in AUM—a 40% increase from last year—and inflows just over US$102 billion.
• The Asia Pacific market had a record-breaking year as well, with inflows of US$61 billion and the total ETF market surpassing US$437 billion.

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“The efficiency of ETFs resonates with investors; both as long-term holdings and as tactical trading vehicles and we have seen increased acceptance of them across institutional, advisory and direct investors,” says Mark Raes, head of ETF Business Development. “This industry growth has seen the emergence of new ETFs that transcend traditional equity and fixed-income exposures, giving investors access to innovative market trends and complex derivative strategies.”

Key trends

The report also looks at themes affecting the ETF industry.

Fixed-income investing: There was an increased demand for fixed-income investments in 2017, as they provide liquidity, transparency and diversification to an over-the-counter asset class. As a result of the macroeconomic environment, adjusting interest rate risk in portfolios is a top priority for investors.

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Valuation levels and growth: The extremely popular FAANG stocks (Facebook, Apple, Amazon, Netflix and Google) were fundamental drivers of market growth in 2017 and have pushed indices to new heights. This impact on equity markets has encouraged index providers to consider sector classifications, which will, in turn, affect ETFs that track the information technology, consumer discretionary and telecommunications sectors.

Currency: With ongoing NAFTA discussions, oil prices rebounding and the ongoing central bank activity, CAD/USD currency volatility will likely continue in 2018.

Thematic investing: A growing industry trend over the past year has been investing in thematic ETFs; for example, ETFs that cover artificial intelligence or Environmental, Social and Governance (ESG) investing.

“We expect to see the ETF industry continue to grow and we project that by 2023, the global ETF industry will double to more than US$10 trillion and the Canadian industry to grow even faster to C$400 billion,” says Raes.

Staff

The staff of Advisor.ca have been covering news for financial advisors since 1998.